What's Out There
Before you accept one or more of those preapproved credit card offers you find in your mailbox, make sure you understand the distinction between the different types of credit cards and the terms and conditions that will affect your costs. There are several types of plastic cards that are loosely referred to as credit cards, but they don't all work alike.
What are gold and platinum cards?
These are cards that include extra perks such as collision coverage when you rent a car, extended warranties on certain items, travel insurance, discounts, and other benefits. They sound appealing, but consider what exactly you get for the privilege of paying a much higher annual fee. Sometimes the “gold” card is just a plain old card painted gold.
The Cost of Credit
There are several types of costs associated with credit cards. The annual fee is a flat dollar amount the issuer charges each year for the use of the card. Many, but not all, issuers charge annual fees, so look for no-fee credit cards (but be sure to consider all the other factors such as grace period, interest rate, and so on).
Finance charges are calculated based on the interest rate your card issuer charges and are the main cost of using credit. These rates vary significantly from one card to another, so you can save a lot of money by shopping around for a card with a lower interest rate.
Other fees that you might incur on your credit card include application fees, processing fees, charges for exceeding your credit limit, late-payment fees, balance-transfer fees, credit life insurance, and fees on cash advances.
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The grace period, commonly twenty-five days, is the time between the date you're billed and the date your payment is due. If you pay your entire balance within the grace period, you may not incur any interest charges. If you carry a balance, there's often no grace period on new purchases, so interest starts accruing from the date of purchase. Some issuers charge interest from the day you make the purchase, even if you pay your balance in full, so in effect there is no grace period.